• Keep BUY, new MYR0.56 TP from MYR0.60, 38% upside. 1QFY25 (Jun) core net profit of MYR0.32m fell short of both our and Street's full-year estimates of MYR7m and MYR14m – as our initial revenue and margin estimates were too optimistic. However, Econpile Holdings has returned to profitability after six consecutive quarters of losses. We remain positive on Econpile’s track record in infrastructure jobs vs other piling contractors – in addition to undemanding valuation, as the stock’s FY25F P/BV of 1.7x is below its 10-year mean.

• Results review. ECON’s revenue declined by 33.5% YoY, no thanks to the lower progress billings following the completion of projects in Cambodia. Nonetheless, GPM improved by 4ppts YoY, driven by higher contributions from better-margin projects, with legacy projects mostly at their tail-end. QoQ, the group recorded a core profit of MYR0.3m from a core loss of MYR5.7m in 4QFY24 due lower administrative expenses on a provision made for receivables related to a client in receivership.

• ECON’s outstanding orderbook stood at MYR483m as at end 1QFY25 (1.2x cover ratio) vs MYR417m a year ago. YTD-Oct 2024 new job wins stood at MYR166m – this includes piling works for condominiums, and mixed development commercial buildings. We anticipate the positive momentum in private construction jobs to continue, with residential properties’ overhang down 13.8% YoY in 1HCY24 – indicating improved demand in the property market. Additionally, we view ECON as a beneficiary from upcoming infrastructure rollouts, given its solid track record in railway- and highway- related projects (Figure 2). Potential rerating catalysts include faster-than- expected approvals or rollouts of the Penang Light Rail Transit (LRT) and Sungai Klang Link projects (worth MYR300-500m; total project costs: MYR8-10bn).

• Forecasts. As earnings missed estimates, we slash FY25F-27F bottomline by 11.9%, 13.1%, and 9.7% by moderating margins assumptions and reducing our FY25F job replenishment assumption to MYR600m from MYR800m previously on potential delays anticipated. While our FY25F-27F earnings reflect a growth vs core losses incurred during FY22-24, our projections have yet to match levels seen in FY18, when core earnings were at MYR87m, which warrants us to continue adopting a P/BV valuation method.

• Post earnings adjustments, we derive a new MYR0.56 TP that is still pegged to a 2.5x target P/BV. We view this target P/BV (+0.7SD from its 10-year mean) as justified, reflecting ECON’s role as a subcontractor of big-ticket projects such as Mass Rapid Transit 2 (MYR180m) and LRT3 (MYR208.7m). A 6% ESG discount is also baked in.

• Downside risks: Slower-than-expected roll-out of mega infrastructure projects and volatile material prices.

Source: RHB Securities Research - 28 Nov 2024